After the Flood: Economic impact

South Carolina’s 1,000-year rainfall event and catastrophic flooding in October 2015
caused several deaths, scores of dam breaches, extensive property damage, drinking
water contamination and agricultural loss. Immediately after the catastrophe, the
Office of the Vice President for Research created internal funding opportunities to
support relevant faculty research. Thirty-four projects, led by more than 80 faculty
researchers, were funded and reports from each project will be presented this October
at the S.C. Floods Conference. Here is the third of six stories from a cross-section
of the projects.

The flood as economic stimulus

“We see most of the damage in the Midlands and in Charleston, but approximately half
of all of South Carolina’s 46 counties had some sort of damage associated with the
flood." — Joey Von Nessen, economist, Darla Moore School of Business

First came the rain, then — in one tumultuous weekend — the flooding. But the economic
effects of last fall’s weather event lingered long after.

Economists Joey Von Nessen and Doug Woodward at the Darla Moore School of Business
are using data from the S.C. Department of Insurance and Federal Emergency Management
Agency to better understsand how the flooding has affected the state’s economy.

Those organizations track money flowing into the state to cover losses in agriculture,
infrastructure and real estate, and the researchers have seen, in their preliminary
data, that significant funding has arrived already. In terms of how those dollars
might still affect South Carolina’s economy, though, it’s a question of when they
will be spent.

And there are plenty of places to spend.

“We see most of the damage in the Midlands and in Charleston, but approximately half
of all of South Carolina’s 46 counties had some sort of damage associated with the
flood,” Von Nessen says. “We are going to see unambiguous losses in wealth as a result
because there were a lot of uninsured individuals who were affected that are not being
reimbursed for any damages. In many cases property is going unrepaired altogether.”

The overall reduction in net wealth should, however, be accompanied by a stimulus
to the economy, the economists believe, at least in the short run. After Hurrican
Hugo in 1989, for example, economic activity ramped up, Von Nessen says, and he and
Woodward are seeing some of the same in the early data from the recent flooding.

“Usually in natural disasters like these, you see a stimulus in two sectors. One is
construction because damaged infrastructure is repaired and firms are brought in to
do that work,” he says. “But we also are tentatively seeing a boost in retail activity
as well, and a lot of that is housing-related goods and services.”

One specific example of the stimulus that they expect to see in the final analysis
is an increase in hiring.

“Looking at employment going forward, we’re expecting about 2.7 percent employment
growth — our current rate now — to persist for the remainder of 2016 and into 2017,
and our anticipation is that the stimulus from the flood may have as much as about
a quarter to a half of a percentage point bump on that baseline employment growth,”
Von Nessen says. “So we might expect perhaps 3 percent employment growth or slightly
more.”

That kind of economic bonus is nice in the short term, but is expected to be followed
by an eventual downside, Von Nessen adds.

“It is a stimulus, but I think it would also be appropriate to think of it as almost
a mini-bubble,” he says. “Many of the repairs are to damaged property that in some
cases needed renovations anyway, repairs that people may have been looking to make
down the road.

“So in a sense we see a borrowed future demand: you see a bump up, a short-term stimulus,
and then a bump down, below the long-term averages, later on.”

Learn more

The Office of the Vice President for Research is hosting a daylong conference showcasing
research funded by the 2015 SC Floods Research Initiative. The Oct. 7 event starts
with an 8:30 a.m. check-in at the Columbia Metropolitan Convention Center. It will
feature scholarly oral and poster presentations from all of the 34 flood initiative
research projects. Register for the free event at the SC Floods Conference website.

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